The Future of Equity Crowdfunding: Decentralized, Blockchain and AI

Equity crowdfunding, the practice of raising capital by soliciting small investments from a large number of people, has come a long way in the key USA market since product crowdfunding first gained popularity in the mid-2000s. Initially, crowdfunding was largely limited to product, donations or rewards-based campaigns, but with the passage of the JOBS Act in 2012, equity crowdfunding was legalized in the United States. 

But equity crowdfunding is not just about democratizing access to capital. It’s also about leveraging emerging technologies like blockchain and artificial intelligence to create a new global investment opportunity for the public. An opportunity that will allow investors to get in on the deals that previously only Venture Capital companies and their big money backers have accessed.

The early days of equity crowdfunding

The origins of crowdfunding can be traced back to the early 2000s, when platforms like ArtistShare and SellaBand were launched to help artists and musicians raise money from fans in exchange for a share of future profits. In 2006, Kiva, a platform for microlending to entrepreneurs in developing countries, was launched, paving the way for a new generation of crowdfunding platforms focused on social impact.

Around the same time, product crowdfunding platforms like Kickstarter and Indiegogo emerged, enabling entrepreneurs and creatives to raise money from a large number of small investments in exchange for new innovative products or projects like films. These platforms proved hugely popular, with Kickstarter alone raising over $5 billion since its launch in 2009.

However, it wasn’t until the passage of the JOBS Act in 2012 that equity crowdfunding as we know it today became legal in the United States. The JOBS Act allowed companies to raise up to $1 million in capital through crowdfunding, paving the way for the launch of platforms like SeedInvest, Crowdfunder, and WeFunder.

The rise of equity crowdfunding

Since the passage of the JOBS Act, equity crowdfunding has grown rapidly, with platforms attracting billions of dollars in investments. In 2018, the equity crowdfunding market in the US was valued at over $1 billion. Despite the challenges brought on by the Covid-19 pandemic, the industry experienced a surge in growth, with new platforms, partnerships, and campaigns emerging daily. Looking ahead, the crowdfunding market is predicted to expand aggressively over the next few years powered by new excitement in the sector and new blockchain-powered global crowdfunding.

One of the key drivers of this growth has been the democratization of access to capital. Prior to the rise of equity crowdfunding, startups and small businesses had limited options for raising capital, often relying on traditional sources like bank loans or venture capital firms. Equity crowdfunding has changed this, enabling entrepreneurs to tap into a vast pool of potential investors and raise capital more quickly and efficiently than ever before.

Another factor driving the growth of equity crowdfunding has been the increasing importance of social impact and sustainability. Many investors today are looking for more than just financial returns – they want to support companies that are making a positive impact on the world. Equity crowdfunding platforms like StartEngine and Republic have capitalized on this trend, offering investors the opportunity to support companies focused on social impact and sustainability.

The future of equity crowdfunding

Looking ahead, the future of equity crowdfunding is likely to be shaped by three key trends: decentralization, blockchain, and artificial intelligence.

Decentralization

One of the main criticisms of traditional finance is that it is too centralized, with a small number of large institutions controlling the flow of capital. Equity crowdfunding has already gone some way towards addressing this issue, but the industry is still dominated by a handful of large platforms.

In the future, we can expect to see a more decentralized ecosystem, with smaller platforms and even individual investors playing a greater role in the funding process. This will  be facilitated by the emergence of decentralized finance (DeFi) platforms, which use blockchain technology to create a more open, transparent, and accessible financial system.

Blockchain

Blockchain technology has the potential to revolutionize the equity crowdfunding industry by overcoming the scaling issue that limits the investor base that deals are offered to. By tokenising company shares on the blockchain, the ability to buy, own and sell what were previously illiquid assets can be transformed. 

The greatest revolution in the investment business is that a system based on blockchain technology can become global, with deals offered to a global investor community. Payments can be secured through cryptocurrency, and ownership secured by blockchain. The impact on investment opportunities will be as revolutionary as the Internet has been for knowledge–there are no geographical limitations.

Blockchain will also improve the security and transparency of the investment process. By using smart contracts, investors could be assured that their funds are only released to the company when certain conditions are met, such as reaching a certain funding goal or meeting certain milestones.

Artificial Intelligence

Finally, the use of artificial intelligence (AI) is likely to play a significant role in the future of equity crowdfunding. AI could be used to improve the efficiency of the investment process, for example by automating the due diligence process or by using algorithms to match investors with suitable investment opportunities.

AI could also help to reduce the risk of fraud and improve the accuracy of investment decisions. By analyzing vast amounts of data, AI could help investors to identify high-potential investment opportunities and avoid potential scams.

Final thoughts 

Equity crowdfunding has come a long way from its roots as a niche fundraising model for artists and musicians. Today, it is a rapidly growing industry that is democratizing access to capital and empowering entrepreneurs to bring their ideas to fruition.

As we look ahead, it is clear that the future of equity crowdfunding will be shaped by decentralization, blockchain, and artificial intelligence. These technologies hold enormous potential to create a more transparent, efficient, and secure financial ecosystem that benefits both investors and companies alike.

The Dacxi Chain, with its global crowdfunding network, is well-positioned to lead the way in this new era of equity crowdfunding. By leveraging blockchain and AI technologies, the platform provides investors and companies with a secure and transparent crowdfunding experience. With its commitment to creating a sustainable, equitable, and inclusive financial system, Dacxi Chain is poised to be a key player in the continued growth and evolution of equity crowdfunding.

As the industry evolves, it will be crucial for regulators to strike a balance between encouraging innovation and safeguarding investors from potential risks. Ultimately, the success of equity crowdfunding will depend on its ability to create a robust and equitable financial system that benefits all stakeholders – entrepreneurs, investors and crowdfunding companies alike.